Grand rescue plan on cards for highway-project defaulters

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Last Updated: Wed, Oct 30, 2013 10:19 hrs

New Delhi: Frustrated by several jammed highway projects, plans are afoot to re-negotiate contracts worth Rs 99,000 crore ($15.2 billion) with some of the private players in a bid to give them payment concessions, instead of imposing penalties.

According to official sources, a grand rescue plan, billed as a one-time measure, is in the final stages of government approval and involves 23 concessionnaires (the private parties) and a total project cost of Rs.34,000 crore ($5.2 billion).

Finance Minister P. Chidambaram and Road Transport and Highways Minister Oscar Fernandes have okayed a moratorium of 6-10 years on the premia due from them. Law Minister Kapil Sibal has been asked to reconfirm if this plan is legally and constitutionally tenable.

This, even after a senior official in the office of the Comptroller and Auditor General found fault with the proposal and aired the opinion on the relevant file.

"Rescheduling of premium is inconsistent with the legal contracts between government and private concessionnaires and will have implications for the bidding procedures adopted to determine the concessionnaire," the official has noted on the file.

Highways deemed lucrative are given out to the bidder who offers the highest premium. Likewise, those highways which have low volumes of traffic, and hence deemed unviable otherwise, are awarded to the bidder who demands lowest viability gap funding.

Earlier, Sibal had noted that the rescue plan only has financial implications and it was the finance ministry's opinion, and not his, that was required. In the process, even he had overturned the opinion of a joint secretary in his ministry.

The law officer had said renegotiation was "neither desirable nor permitted at (such) a belated stage... (and was likely to) open a pandora's box among equally-situated persons having contracts with the NHAI (National Highways Authority of India)".

The authority is the intended beneficiary of Rs.99,000 crore, as the money is expected to be used by it to build roads elsewhere in the country, mainly as a social obligation.

Sibal's reconfirmation and the subsequent approval of the Cabinet Committee on Economic affairs presided over by Prime Minister Manmohan Singh will not only defer the payments by 6-10 years but also allow a major discount on the annul premia.

The National Highways Builders Federation, in fact, wants a sweeter deal.

Among the 23 concessionnaires, tasked to build 3,450 km of highways, GMR group was the first to throw its hands up on the 6-laning of a 555-km highway costing Rs.5,387 crore from Kishangarh to Udaipur in Rajasthan and further to Ahmedabad in Gujarat.

The company has a legal liability to pay government-owned highways authority an annual premium of Rs.636 crore. But the nodal ministry has found, instead, that GMR's annual proceeds from charging toll already exceeds Rs.715 crore.

Out of 23 select concessionnaires, some no doubt are in distress. The more fortunately placed are also happy to join the chorus of economic downturn and claims of incapacity to raise the requisite debt or equity.

The highways authority has backed this reopening of contracts citing national interest.

Besides demanding that payment liabilities are deferred, concessionnaires want rights to toll the roads in the case of all 6-laning projects from the "appointed date" itself -- the date of financial closure from which the concession period formally starts.

The alternative would have been to penalise concessionnaires for default and put their projects up for a re-bid. This, the authority and the ministry both argue, would delay their take-off even further.

While nixing his joint secretary's objections on the earlier occasion, Sibal had tossed the ball to Chidambaram citing that the matter was primarily a financial one.

During the passing of the parcel, Economic Affairs Secretary Arvind Mayaram had also advocated "extreme caution, since renegotiating concessions post-award has an element of moral hazard". He also then relented.